IB - Dealing With Early Exercise of Options

Discussion in 'Order Execution' started by yucca_mtn, Nov 14, 2007.

  1. I trade spreads. Occasionally my short calls get exercised early, so suddenly I have to buy some stock. If my margin is sufficient I can easily exercise my long calls when I find out about the early exercise and no harm is done.

    IB does not provide a way to automatically exerise my long calls in that situation (as far as I can determine). Does anyone know if there is third party software that can handle the situation where if a short call is exercised early, a user-selected long call will automatically be exercised also?

    The potential danger (recently experienced by me) is when the margin is not sufficient to handle the exercised short calls, then IB starts liquidating computer selected positions to raise the cash. When that occurs while you are not watching, the underlying stock can drop in price before you get the chance to exercise your long calls - resulting in a loss, possibly a lot!
    So I have to keep a close eye on margin vs. worst case situations.

    Thanks in advance.
  2. There isn't really software or anything you can use to immediately exercise option like you want. You don't know you've been assigned until later anyway. My broker doesn't ever liquidate positions on me like that though.

    Anyway, I think that your best course if you're worried about that would be to trade the OTM equivalent of your spread. Exact same position but no risk of early assignment.
  3. rayl


    Your exercise will be at least 1 day in arrears bec you don't find out about your assignment until the next day. And of course, if it's on expiration Friday....